Contents

2. Background

2.1 There has been much discussion and debate about the barriers
to New Entrants to Scottish farming. New Entrants are recognised to
be vital for the future of any industry as they drive innovation
and best practice, improve efficiencies and contribute towards the
economic vitality of the sector. However, evidence provides that
Scottish farmers are getting older and that trend shows no sign of
reversing.

2.2 Data from the June 2015 Agricultural Census, showed around
9% of farm occupiers are 40 and under. Returns confirm that 28% are
between 40 and 54 and 27% between 55 and 64. Crucially, the 65 and
over category has increased over recent years to 37%.

2.3 Studies into the barriers to New Entrants include the 2007
investigation by Scotland's
Tenant
Farming Forum (
TFF) and then two
years later Lantra conducted a survey of Young Farmers Clubs in
England and Wales. On each occasion, access to land figured most
prominently.

2.4 A pilot programme, "Exchange Programmes for Young Farmers",
financed by the
EU in 2015 to provide a
comprehensive assessment of the specific needs of young farmers
across the
EU also showed that young
farmers in the
UK perceive the
availability of land, credit, subsidies and useful training as more
problematic than other young farmers in the
EU.

2.5 These findings concur with our own understanding that along
with sourcing capital and cash, accessing land is the main barrier
to joining the farming sector. However, both land for purchase and
rent are relatively scarce in Scotland and demand continues to
outstrip supply. This demand means that land values and rents
remain out of line with potential agricultural returns, with
outside money and established farming businesses being able to
outbid New Entrants for any available opportunities.

2.6 It is estimated that the average age of a Scottish farmer is
58. In a significant number of instances there is no successor in
place. A survey
[1] has previously found this could be the case on a quarter of
all farms. This is frequently due to children choosing alternative
careers due to the farm being unable to sustain additional family
members or potential income being comparatively poor.

2.7 Taxation rules may be a barrier to New Entrants. Under
existing Inheritance Tax Rules, no tax is charged on lifetime gifts
to individuals (e.g. a father transferring to his son) but should
the donor die within seven years of making the gift then the
transfer is taxed (on a decreasing scale) on the value of the farm
at transfer. But if the transfer is made after death, then it may
qualify for 100% relief. This dissuades farmers from passing on
assets to the next generation.

2.8 Very often economies of scale mean existing farming
businesses, with security and assets, attain additional land to
spread fixed costs and increase returns. The splitting of farms in
commuting distance of major urban centres has also become common
practice as sellers try and maximise their overall sale value. This
has meant that many farms have become fragmented to capture the
residential value of farmhouses and cottages and the development
value of traditional steadings from lifestyle purchasers and
developers.

2.9 We are also aware of the argument that the Common
Agricultural Policy's Basic Payment model distorts the market.
There is a perception that such subsidy supports rents and capital
values and provides, what can appear to be a pension for occupying
land, often maintaining businesses that are economically unviable
to the detriment of the sector's overall capacity for innovation
and efficiency.

2.10 Equally, we know that fiscal measures have a major bearing
on the Scottish land market. Being classed as an active farmer
gives a range of tax benefits, both in terms of allowable costs for
income tax and relief on inheritance and capital gains taxes. This
can make letting a poor option for many landowners.

2.11 All of this means that land values are particularly
prohibitive to new, especially young, entrants to farming and for
those trying to enter farming, therefore, often the only option of
getting access to land is to rent it on a seasonal basis from other
farmers. While this allows the business to be established with
relatively low cost and for livestock to be built up, there are
draw backs to this system in terms of security and infrastructure.
The licences that are drawn up for seasonal land are by their very
nature for periods of less than one year, making it very difficult
for a new business to plan ahead.

2.12 While there have been private landowners offering starter
units, only the
FES Starter
Farm Programme has in recent years consistently offered potential
New Entrants with a direct route into farming through longer term
fixed tenancies. Under the initiative, there is no strict
definition as to the size and type of starter farm as this is
dependent on the resources available. However, the farms are
usually in the region of 60-70 hectares, have suitable fixed
equipment and infrastructure and are let on a 10 year Long Duration
Tenancy. The basic remit is to provide a business opportunity to a
new entrant that will, typically, generate a part-time income for
the farming family.

2.13 It is noted that 10 units have been created to date (9 by
FES and 1 by
SG) and that
development of starter farms can cost in excess of £200,000
per unit. This is due to the need to bring houses and steading up
to a suitable letting standard and meet the cost of upgrading,
often run down, fencing.